Hobart may have used up most of its downside, but 2013 is likely to be flat at best for property prices. The Australian dollar needs to fall in value for the Tasmanian economy to kick back into gear.

The last 12 months have seen tumultuous times for investors on the Apple Isle. Tasmania’s economic performance is often linked to the strength of the Australian economy in general; a lift in national sentiment will filter down across Bass Strait, but, on the flipside, poor sentiment and uncertainty is felt the hardest, due to a lack of access to mainland growth drivers. The nearest states are Victoria and South Australia, which are also struggling, adding to Tasmania’s challenges.

The strength of the Australian dollar has hurt Tasmania, which relies strongly on environmental tourism and exports to boost the economy.

The positive to come out of the recent pain is that there may not be much further to fall for house prices. Recent RP Data figures showed an easing in the rate of price decline in the capital.

“Hobart’s housing market is showing some tentative signs of recovery,” says Tim Lawless, RP Data national research director. “Values have been virtually fl at over the past 12 months to September with a 0.1% improvement.”

However, Lawless warns that any recovery remains uncertain due to a decline in quarterly values and also weekly rental rates over the year.

“We’ve seen a bit of a bump from Tassie recently, but I think that’s a bit of a dead cat bounce,” says Andrew Wilson, APM senior economist. “It’s coming from a very low bottom and I would suggest the Hobart housing market will continue to bump along, hoping that 2013 is a good year for the Australian economy.”

Supply and demand factors

1. Strong Australian dollar

States with economies reliant on tourism and manufacturing rather than resources have carried the recent burden of a strong Australian dollar.

“Tasmania’s main exports are timber and agriculture,” says Angie Zigomanis from BIS Shrapnel. “These things are being held back by the high dollar, in terms of exports, production and competing for imports too.”

Zigomanis believes these industries could lay dormant until enough interest is generated to see them emerge once more.

“There’s probably still some scope for agriculture there, which will depend on the dollar and how competitive they can get,” he says. “There was a Chinese company looking at dairy farms in Tasmania not long ago, which indicates that even if we’re not looking at the farms, some others are.”

The dollar dilemma may ease for Tasmania and other non-resource states, if the currency weakens in the face of its usual influences.

“Traditionally the Australian dollar falls when interest rates are lower, relative to other countries,” says Zigomanis.

“Between the cuts to interest rates and the lower commodity prices, the dollar should fall, but maybe not by huge amounts.”

2. Unemployment

A number of business closures and industry struggles saw Tasmania’s unemployment soar in 2012. It seemed that every week an investor was withdrawing from a project or a factory was closing down. By the late stages of 2012, unemployment had hit the 7% mark. The last major setback was the likely end of the Gunns pulp mill project.

“Gunns falling over was an absolute disaster,” says John Edwards, Residex CEO. “Tasmania needs to have activity other than tourism.”

ANZ senior property researcher Paul Braddick is not as sceptical about the future of the mill.

“A lot of people are saying that the collapse of Gunns and the potential takeover by offshore interests, particularly Chinese, could actually see the project more likely to go ahead than it has been in a long time,” he says. “Gunns were clearly struggling to get finance to get that off the ground, so that would be less of an issue for a cashed-up buyer.”

The Deloitte Access Economics Business Outlook is tipping unemployment rates to improve going forward; dropping to 6.6% by June 2014 and 6.3% by 2016.

While a number of projects have fallen off the radar, there are still some hefty ventures going ahead.

Engineering construction projects include Hydro Tasmania’s $425m wind farm at Little Musselroe Bay, to be completed in 2014; the $190m Brighton/Pontville bypass, due in 2013; the $42m north eastern freight roads project, due in 2013; and a $500m wind farm at Cattle Hill, pending approvals.

Commercial work includes the $565m redevelopment of the Royal Hobart Hospital, continuing until 2016; the redevelopment of the Tasmanian Museum and Art Gallery; a new health service facility at Glenorchy; and a new maximum security block at Risdon Prison, to be completed in 2013.

3. Population flow

Interstate migration speculation has been the subject of some negativity lately, with younger Tasmanians perceived to be leaving in droves. However, the QBE LMI Housing Outlook 2012-2015 report tells a different story.

“Net interstate migration into Tasmania has been positive in recent years,” the report says. “Most interstate migration comprises ‘tree change’ movers from the mainland. Therefore, they will often have a greater level of assets and having retired will have a lower need for employment.”

The fast-retiring baby boomer generation are responsible for this inflow, which will make property prices at the bottom more stable, according to Andrew Wilson.

“They move there to downsize or retire, so they just stay put,” he says. “There’s no fire sale environment.”

While the tree changers continue to turn up, BIS Shrapnel is forecasting the state’s annual average population growth is set to fall to 0.4%, from its 2006-2012 average of 0.7%.

Meanwhile, net interstate migration is predicted to be an outflow of 2,000 in 2013.

The sharpest increases in departures are from young professionals and skilled workers, which has seen the rental vacancy rate move from 2.7% in 2011 to 4.8% in 2012, according to the QBE LMI report.

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